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Retailing giant Coles will tackle the major banks head on as it seeks a formal banking licence, allowing it to add savings accounts to its existing financial services products.

Coles is understood to be well down the track in obtaining an Authorised Deposit-taking Institution licence from the Australian Prudential Regulation Authority, which will allow it to take deposits under its own name rather than in partnership with a bank.

The move comes as supermarkets spread their reach into the financial services sector, offering products such as insurance and credit cards.

Australian Bankers’ Association chief Steven Munchenberg said the sector had been expecting the emergence of new competitors.

“The industry always welcomes competition and it is matter for APRA to decide whether someone should get a licence or not,” he said.

“The existing industry is well aware that things like technology and the stabilisation of funding markets mean that there [are] going to be new players wanting to come into the market. I think the industry recognises these things are going to happen.”

In September last year Coles trademarked the brand “Coles Money” and the trademark was accepted in April. The lodgment said the classes of goods and services covered included financial, monetary and banking services, and insurance services. Two other trademarks “Coles Financial Solutions” and “Coles Financial Group” were also accepted in April.

Critically too for the expansion of financial services products into full banking, Coles's 20-year agreement with global cards giant GE Capital winds up in 2015 and Coles has the option to buy out its partner.

Looking to develop financial services portfolio

Coles head of communication Jon Church told The Australian Financial Review “We have a small portfolio of financial services, insurance and credit cards, and we are looking to develop that.

“We haven’t said more [and] we are not going to give a . . . commentary on where financial services might go.”

Coles replaced a non-branded GE credit card with its own MasterCard last year and has also upgraded a key piece of payments technology that allows it to act as a bank in the processing of payment card transactions.

In 2011 Coles bought National Australia Bank’s 50 per cent share in the moribund FlyBuys loyalty scheme and relaunched the program in 2012. Insurance was launched this year.

Along with several other senior executives, Church came to Coles from ­British supermarket giant Tesco and it is Tesco that is considered the global model for supermarkets wanting to offer ­financial services products.

Coles is also known to be recruiting senior financial services executives with retail banking experience.

Revenue raising, tying in customers

According to Internal Consulting Group’s financial services practice leader David Cartwright, who has experience with British supermarket giant Tesco, such a move to full banking by Coles would be a logical way both to grow revenue and to better understand and tie in customers.

“In the UK, life insurance is now sold online and through Tesco and Marks & Spencer, but the aim for supermarkets is generally simple products – savings accounts, credit cards, car insurance. It looks like that is what Coles is doing,” he said. “We’re not talking complicated, sophisticated banking here.”

Mr Cartwright said threats can come from any industry where a company has a strong customer base. In the US, coffee chain Starbucks has a “closed loop” system allowing customers to store money with the chain to spend on its products.

Qantas issues payment cards via the small Heritage Bank.

“The risk for the banks when they respond to these sorts of no-frills offers is they might cannibalise their more profitable business,” Mr Cartwright said. “That’s why they have sub-brands such as [National Australia Bank’s] UBank.”

Critically, financial services is one sector where Coles is ahead of arch-rival Woolworths, which was long ­suspicious of selling such products in its stores and has a recent history of failed and less than successful ventures in that space.